Beginning in 2018, the Internal Revenue Service (IRS) increased the Health Flexible Savings (FSA) contribution limit. In Revenue Procedure 2017-58, released in October, the salary reduction contribution limit has been raised by $50, resulting in a total of $2,650 for 2018.
The IRS also included cost-of-living adjustments that will contain dollar limitations in certain sections of the Internal Revenue Code. Other adjustments relevant to individuals and employer sponsors of welfare and fringe benefit plans will be detailed below.
Limit Increases for 2018:
Commuter Parking/Mass Transit pass Monthly Limit Increase
The monthly limit for qualified transportation fringe benefit is $260 for both commuter and mass transit parking in 2018. These are both $5 increases from 2017.
Small Employer Tax Credit Average Annual Wage Limit Increase
The maximum average wage limit that a tax credit will be given to employees has increased. For 2018, health insurance tax credits will only be for an employer if the employees make up to $53,400 in average annual wages. This is a $1,000 increase from the 2017 threshold.
Small employers will see an increase as the tax credit begins to phase out at $26,500, which is a $500 increase from 2017.
Adoption Assistance Tax Credit Increase
For 2018, an adoption of a child with special needs will raise the amount that can be excluded from an employee’s gross income to $13,840. This is a $270 increase from 2017. For the amounts paid or expenses incurred by an employer for qualified adoption expenses in an adoption assistance program is $13,840, also a $270 increase. For taxpayers, the amount excludable from an employee’s gross income will phase out beginning with a modified adjusted gross income in excess of $207,580. This is a $4,040 increase from the 2017 policy. The amount excludable is completely phased out for taxpayers with modified adjusted gross incomes of $247,580 or more, also a $4,040 increase from the 2017 threshold.
Qualified Small Employer Health Reimbursement Arrangement Increase (QSEHRA)
Reimbursements cannot exceed $5,050 for single people, or $10,250 for a family unit. This is an increase in $50 and $250 respectively, from 2017.
Refundable Credit for Coverage under a Qualified Health Plan
The limit on repayment of excess premium credits in advance is determined by income. Individuals who were previously ineligible for the premium credits they received will have repayment capped for 2018.
2018 HSA Contribution Limits and High Deductible Health Plans (HDHPs) Out-of-Pocket Limits
The ACA’s out-of-pocket limits for in-network essential health benefits have also increased for 2018. All non-grandfathered group health plans must contain an embedded individual out-of-pocket limit within family coverage, if the family out-of-pocket limit is above $7,350 (2018 plan years) or $7,150 (2017 plan years). Exceptions to the ACA’s out-of-pocket limit rule are available for certain small group plans eligible for transition relief (referred to as “Grandmothered” plans). Unless extended, relief for Grandmothered plans ends December 31, 2018.
The IRS announced adjusted amounts for 2018 related to HSAs and HDHPs. The ACA’s out-of-pocket limits for in-network essential health benefits have increased for 2018.
ACA Reporting Penalties (Forms 1094-B, 1095-B, 1094-C, 1095-C)
Penalties for returns filed in the applicable year have also increased. Failure to provide form 1095-C to an employee will result in two penalties. The penalties can be increased for willful failures with no cap on the penalty.